Crisis meeting sparks fear of Hong Kong clampdown
Saturday 05 September 1998
Dealers said the meeting could signal that new steps to control the stock market were on the way.
Hong Kong government sources insisted last night that there was no question of introducing exchange controls since these were explicitly banned by Hong Kong's constitution. The meeting would centre on the discussion of measures to strengthen the existing currency board system which for the last 15 years has pegged the HK currency to the US dollar.
"It is not for me at this point in time to come to the specifics because that would need to be discussed with the banks," said HKMA's chief representative in New York. "I just want to put the message acrosss that the issues to be discussed will be centred around measures to further strengthen and purify the currency board system."
Hong Kong Financial Secretary Donald Tsang pledged earlier this week to introduce new measures to "improve transparency of the stock market". The package could be unveiled as early as Monday.
But the government is under pressure to find a way of convincing the markets that the dollar peg which has been the linchpin on the region's economic policy since 1983 can hold, in the face of an almost universal belief that devaluation is now an inevitability.
Rachel Chan who heads the Hong Kong Government's Economic and Trade Office in London insisted that the Hong Kong Government was committed to the free market and was not trying to introduce the kind of exchange and capital controls that Malaysia has brought in.
"A lot of governments in the region are trying to control the market. We are not going to be one of them," she said.
But such statements have failed to reassure foreign investors. "Hong Kong shorts are very nervous," said one dealer last night. He was referring to the international investors who have been selling or "shorting" the currency in anticipation of an imminent devaluation. The Hong Kong Monetary Authority is believed to have spent HK$120bn over recent weeks to support the Hong Kong dollar by buying shares in the market.
The HKMA has ended up with sizeable stakes in as many as 30 companies. But apart from the 8.9 per cent stake in Hong Kong & Shanghai Bank which it was obliged to disclose because of London stock exchange rules, it is refusing to release further details. The authority is also exerting pressure on brokers who have drawn up their own lists of HKMA holdings not to release those to the public.
It is nevertheless believed that the authority has large stakes in such well-known companies as Huchison Whampoa, the largest shareholder in Orange the UK mobile phone operator; Swire, which owns Cathay Pacific the airline, and Cheung Kong, the property company controlled by pro-China entrepreneur Li Ka Shing.
The intervention appears to have stabilised the stock market for the time being. The Hang Seng index closed up more than 2 per cent at 7488.47 yesterday, before news of the crisis meeting had come out.
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